Gap Risk

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DEFINITION of 'Gap Risk'

The risk that an investment's price will change from one level to another with no trading in between. Usually such movements occur when there are adverse news announcements, which can cause a stock price to drop substantially from the previous day's closing price.

INVESTOPEDIA EXPLAINS 'Gap Risk'

For example, gap risk is the chance that a stock's price closes at $50 and opens the following trading day at $40 - even though no trades happen between these two times.